President Trump’s Executive Orders

The stimulus has gotten a lot messier than many thought it would be. This is not going according to plan. President Trump issued 4 executive orders which at first glance saved the day, but actually, according to some analysts, may not have. The stock market is on a 7-day winning streak as it completely ignores every risk there is. However, this isn’t a complete solution and could make matters worse on one front.

Firstly, the executive orders don’t seem to include stimulus checks. This isn’t President Trump’s fault. Perhaps the stock market’s amazing winning streak is making Congress less likely to act. To be clear, it’s not that they have specific S&P 500 targets like some skeptics claim the Fed has. 

It’s that down markets with negative headlines put pressure on Congress like what happened with TARP in 2008. Some had been claiming in July that a weak BLS report would pressure Congress to act. However, a good report came out, so Congress didn’t act. That understanding of motivations was correct; it just wrongly predicted a bad report would come out.

To be clear, it makes no sense to follow the stock market’s near term action when setting economic policy. It does make sense to follow the labor market. This great report makes a stimulus less needed, but a few would argue it’s still needed. It could be correct to assume the decline in unemployment benefits spurring people to get a job. Once people get jobs, the worst of the recession will be completely over.

Obviously, Congress can pass a stimulus at some point. One problem is President Trump passed a payroll tax cut for the last 4 months of the year for those earning less than $100,000. Firstly, delaying taxes for the last 4 months of 2020 only to have to pay them next spring isn’t much of a deferral. 

Secondly, if people spend the money and Congress doesn’t make the tax cut permanent, people will have tax bills when they file which they likely aren’t used to. The good news is the order doesn’t require employers to stop withholding the money, so they can just act normally to avoid workers having a big tax bill in about 7 months.

$300 To $400 In Weekly Benefits

Other parts of the order include deferring student loans payments through the end of the year. Deferrals explain why student loans defaults fell so much. Furthermore, federal weekly unemployment benefits were extended at a rate of $400 per week which is lower than the $600 per week previously. This is better than the proposed $200 in benefits by the GOP (for 2 months and then 70% wage replacement). It will last until December 6th. 

President Trump said states need to cover 25% of the benefits. The caveat is states don’t need to pay that $100 because they can count the first $100 in weekly benefits they pay. Therefore, it’s really $300 in benefits.

It took a long while, but essentially the ruling is about what was expected. It makes sense to keep giving people benefits especially when it comes to political approval rates. If some politicians believe people aren’t going back to work because of the high benefits, lower them slightly so people don’t get paid more to not work. Even if that theory is wrong, many more people will likely be working in August than in the spring which lowers the negative impact.  

Labor Market Improves

Dallas Fed’s real-time population survey shows the labor market got stronger in late July. This confirms the recent jobless claims report in the last week of July which showed unadjusted claims fell below 1 million. As you can see from the chart below, the real-time population survey shows the prime-age employment rate rose from 61.7% to 64.9%. That’s a new high since the recession started. 

The real-time unemployment rate fell from 15.9% to 15% which tied the low since the recession started. The prime-age labor force participation rate rose from 73.4% to 76.4%. Data still shows the July labor report should have been weak because in the survey week the data was weak.

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Getting Back To Normal

The economy is headed back to normal after a brief blip in July. This explains why the cyclical stocks have rebounded in the past couple of weeks. Anyone focused on the data from the first half of July is missing the forest for the trees. The big picture is positive because COVID-19 is getting under control. As you can see from the chart below, after the dip in the 7 day average of TSA checkpoints in the first half of July, it has rebounded.

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COVID-19 Looking Very Good

It’s critical to think in rate of change terms. Obviously, no one wants anyone to get sick from COVID-19. It’s definitely improving from a few weeks ago. As you can see from the chart below, while the growth in testing has declined, new case growth has fallen further as it’s now negative. If less people are feeling symptoms, there will be fewer tests since we aren’t testing everyone. There is no contact tracing.

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Sunday was a bad day for COVID-19 cases as the week over week decline was negligible and deaths actually increased slightly. Data is lumpy. New cases on Monday rose from 48,712 (last Monday) to 49,800. There were 569 new deaths which was up slightly from 562. It’s more important to follow cases since deaths are a lagging indicator. Remember, the 7 day average of cases fell mostly in the first week of August, so deaths haven’t seen that impact yet. 

On the negative side, it looks like the rate of case declines is falling, meaning new cases are flatlining. We’re all curious to see if cases increase when most states open their schools in the next few weeks.